SEC Looking to Establish ESG Reporting StandardBy
The U.S. Securities & Exchange Commission (SEC) took the next step in what will be its highest priority objective in 2021: establishing a standard for environmental, social, and governance (ESG) reporting in corporate filings.
That won’t be easy to do given the diverse opinions on what any standard should require or even if a federal standard is necessary.
Nearly everyone on both sides of the issue agrees that there should be disclosure to shareholders of “material” adverse climate change risks. Some argue it’s already required, but beyond that, opinions diverge widely.
Keir Gumbs, vice president, deputy general counsel, and deputy corporate secretary of Uber Technologies, Inc., argues the current voluntary reporting landscape has led to a proliferation of organizations, standards, and data aggregators, with fragmented and sometimes overlapping initiatives designed to promote consistency and comparability.
“However, this ecosystem often produces the opposite effect and has created a myriad of cumbersome and time-consuming commitments for companies,” he told the SEC in a letter. He backs “harmonization,” which he acknowledges the SEC will have to build from the ground up. Uber supports a “principles-based,” i.e., flexible, standard based on the existing reporting and accounting standards developed by the Task Force on Climate-Related Financial Disclosures and the Sustainability Accounting Standards Board.
Some suggestions coming into the SEC dig deep into the essence of climate risk as a means of delineating possible reporting requirements. Albert Slap, president of Coastal Risk Consulting, LLC, says the SEC should understand that climate risk is a two-sided coin. One side is the “carbon footprint” of a company’s carbon emissions themselves, while the other side is what emissions in general are doing to the company’s physical assets. “Any new SEC climate impact disclosure requirements or guidance should address both sides of this coin,” he said.
The U.S. Chamber of Commerce has advocated for voluntary industry-specific ESG standards, arguing that “material” climate risks are already required to be reported to the SEC. Tom Quaadman, executive vice president of the U.S. Chamber Center for Capital Markets Competitiveness, states, “While the U.S. Chamber is supportive of the development of ESG investing, investors must put economic return at the heart of their decision-making process when investing on behalf of others. There is a distinct difference between investing solely to make a social impact without regard to the return and investing on behalf of others that wish to maximize economic return.”
The conversation and debate will continue.